US stocks rise slightly as investors brace for earnings and Federal Reserve meeting

Receive free market updates

US stocks and bond yields rose on Monday ahead of a busy week of central bank meetings and corporate earnings reports.

Wall Street’s benchmark, the S&P 500, rose 0.4% by mid-afternoon.

The rise came after a closely watched business survey indicated slower-than-expected growth in the United States in July. The Flash Composite Purchasing Managers’ Index came in at 52 – above the 50 mark that indicates economic expansion, but below the June reading and weaker than economists had expected.

Signs of an economic slowdown have sometimes been counterintuitively greeted by US equity investors in recent months, as they lessen the likelihood that the Federal Reserve will make further interest rate hikes.

The US central bank is expected to raise interest rates by 0.25 percentage points after the conclusion of its policy meeting on Wednesday, but investors are divided on a further hike later this year.

Data from earlier this month showed consumer prices rising at their slowest pace since 2021, but resilient economic growth has cast doubts on whether inflation will hit the Fed’s 2% target without further action.

“On the one hand, the U.S. economy continues to perform remarkably well, while on the other, the excellent inflation news means the Fed can ease off and wait a few months for further developments,” said Matthew Ryan, head of market strategy at financial services firm Ebury.

The two-year Treasury yield, which tends to be sensitive to changes in monetary policy, rose 0.05 percentage points to 4.9%. The yield on the 10-year note rose 0.02 percentage points to 3.86%.

The tech-focused Nasdaq Composite stock index added 0.1%, recouping some of the losses suffered last week, but underperforming the broader market as investors await trade updates from Microsoft, Alphabet and Meta in the coming days.

Tech stocks stumbled last week after disappointing results from Tesla and Netflix, but analysts said this week’s reports would be more relevant given recent investor focus on artificial intelligence.

“The real test will be for companies that have significant exposure to artificial intelligence, as investors are eager to see if these companies can report results strong enough to support their dramatically elevated stock prices in recent months,” said James Demmert, chief investment officer at Main Street Research.

In Europe, stocks edged higher even after separate data indicated a contraction in manufacturing and services activity, with the continent-wide Stoxx 600 gaining 0.1%.

The Eurozone composite PMI fell to an eight-month low of 48.9, the second consecutive month of readings below 50. The euro fell 0.5% against the dollar at $1.107.

Line chart of $ per € showing Euro falling after weak PMI data

“Today’s PMI data was already a big disappointment for the European economy, suggesting that the current ‘slowcession’ will not end anytime soon,” said Carsten Brzeski, global head of macro at ING.

A 0.25 percentage point hike in the European Central Bank’s benchmark rate to 3.75% is seen as almost certain when policymakers meet on Thursday, with further upward movement likely in the coming months.

Meanwhile, Spain’s Ibex 35 index fell 0.3% after the country’s inconclusive election result on Sunday as the right and left failed to find a clear path to form a government.

A disappointing statement on economic stimulus from China’s ruling political office also dampened investor enthusiasm in Europe, which is more exposed to China’s economy than the United States. “With [China’s] disappointing recovery, a potential growth engine for Europe is collapsing,” Brzeski added.

A reading from a Politburo meeting on Monday included a pledge to boost consumer spending, but was sparse in detail.

The world’s second-largest economy has struggled to recover from three years of tough Covid-19 restrictions, suppressing global demand and prompting calls for additional government support measures.

“The market was disappointed with China’s reopening of trade and is looking for more, so it might be disappointed,” said Mohit Kumar, chief economist for Europe at Jefferies.

Earlier, China’s benchmark CSI 300 fell 0.4% while Hong Kong’s Hang Seng lost 2.1%.